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Tutor2u ™ GCSE Business Studies Revision Presentations 2004 Growing a Business.

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1 tutor2u ™ GCSE Business Studies Revision Presentations 2004 Growing a Business

2 tutor2u ™ GCSE Business Studies Introduction Why should a business grow?  Once a business has achieved survival, growth is the natural next step  Higher sales and profits will result in the value of the business growing = better returns for the owners on their investment  Helps reduce the risk in the business by selling a wider range of products to a bigger customer base However  Growth is not easy  It often requires more financial and other resources  Growing too fast or in the wrong way can mean there is a bigger risk of a business failing

3 tutor2u ™ GCSE Business Studies New Skills Required by Growing Businesses Finance  Finance needs may increase and become more complex  E.g. may need to raise outside finance Marketing  Ability to develop and launch new products – possibly in new markets where customers have different needs  Expertise of a wider range of promotional methods (e.g. maybe start direct marketing or operating an e-commerce facility) Human Resource Management  Ability to manage increasing numbers of employees  Create a management team / delegation Important to recognise when new skills are needed  Temptation is for a small business owner to take on too much

4 tutor2u ™ GCSE Business Studies Factors Which Help a Business Grow Lower price - people will usually buy more at lower prices Increased promotion (e.g. advertising, e-commerce, direct marketing campaigns) = customers more aware of products Sell in different location- new set of customers, more potential Sell on credit- customers are attracted by ability to buy now, pay later

5 tutor2u ™ GCSE Business Studies Organic and Acquisitive Growth Growth options are often categorised into… Organic growth  Growth achieved from using the existing resources and structure of the business  Profits are re-invested developing new products and finding more customers Acquisitive growth  Where business grows and expands by buying other businesses  Much quicker method of growth – but much higher risk

6 tutor2u ™ GCSE Business Studies Why Grow Organically? Learning  In-house growth allows a business to learn from how its products or service perform in the market. It limits the need to rely on others. Innovation  If a business has an expertise for new ideas and innovation a ‘dilution’ of people and resources from the outside could do more harm than good. There is also money to be made by licensing products or services after they have been developed Where acquisitions are unsuitable  Organic growth might be the only option if there is no other suitable business to acquire or merge with. Better Planning  Maintaining growth within the existing business structure, where knowledge is more freely available, can make business planning more accurate and easier

7 tutor2u ™ GCSE Business Studies Why Grow by Acquisition? A much quicker way to grow Greater market share or complete dominance Expansion into new markets Potential spotted in another business that suggests it is undervalued Brings new skills, experience, brands and customers into a business

8 tutor2u ™ GCSE Business Studies Pitfalls of Acquisitions High risk  May pay too much for the business  May buy the wrong business  May be investing in a market that the business does not understand (often a recipe for disaster) Acquisitions are difficult to integrate into an existing business  Different cultures  Management – can roles be found for the management of the business that has been bought? If not – who stays?  Customers of the acquired business may be unsettled by the change in ownership  Employees in the acquired business become nervous about their futures

9 tutor2u ™ GCSE Business Studies Diversification What is diversification?  Diversification is simply the process of becoming diverse. A business is said to be diversifying when it starts or acquires activities which are different from its core activities Why diversify?  Helps spread risks across a number of products  If one product fails due to market conditions then other products in different markets should not be affected  Good way of expanding if present market seems already full  Gives business fresh objectives and may act to motivate managers and staff

10 tutor2u ™ GCSE Business Studies Advantages That Might Help a Business Grow USP (unique selling point)  Something that makes product different from other products available First in market  Chance to develop a loyal customer base before others have a chance to establish themselves Market leader  Customers are prepared to pay higher prices for market leader  Shops want to sell market leader, – good for distribution Lowest cost producer  Business that is able to produce products and services at lowest cost (perhaps because they are biggest business in an industry) is able to charge a lower price than any competitor Brands  Brands that customers recognise and trust can be a vital kind of competitive advantage

11 tutor2u ™ GCSE Business Studies Horizontal Integration When a business buys another business which is making same sort of product Does not have to be a competitor, but might be a business in another geographical region.

12 tutor2u ™ GCSE Business Studies Vertical Integration When a business buys another business which it either: Sells to (forward integration), or Buys from (backward integration)

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